Disability Insurance Quiz: Trivia!

26 Questions | By Ddeckert | Last updated: Mar 21, 2022 | Total Attempts: 141

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Disability Insurance Quiz: Trivia! - Quiz

Disability insurance is the type of coverage that safeguards the beneficiary’s earned income versus the risk that a disability creates an obstacle to completing essential work functions. In this quiz, you will be responsible for knowing things like which provision of long-term care policy is most important. Most of the quiz contains complex word problems about disability insurance. Don’t hesitate to take your certificate when you have finished the quiz.

Questions and Answers

1.

Your client, a trial attorney, lost his voice a year ago. He now works for a law firm doing trial research only. He is upset because his disability company won't pay disability benefits. After you review his policy, what is your advice to him?
- A.
  
  He has an own occupation policy.
- B.
  
  A dual definition policy.
- C.
  
  He has a loss of income policy
- D.
  
  He has an any-occupation policy.
2.

Assume the prior question continues. The trial attorney had been making $240,000 a year and had a disability policy with a total disability benefit of $10,000 per month. Due to voice problems, his practice was suffering (prior to losing his voice altogether), and his income decreased by approximately one-half to around $120,000 over the last year. Since completely losing his voice, the attorneys' firm has been paying him $15,000 per month to do research. The insurance company has denied his claim. After you review his policy, what is your advice to him?
- A.
  
  He has an own occupation policy
- B.
  
  He has a loss of income policy
3.

Dr. Ted Swan bought a guaranteed renewable policy at age 34. Now 20 years later, the carrier doubled his premium. What are his options?
- A.
  
  To pay the original premium
- B.
  
  To lapse the policy
- C.
  
  To buy a new policy at a cheaper premium.
4.

Bob, a CPA, went through some hard economic times in his 60s. Now at 65, his disability policy is about to expire. Unfortunately, he still needs disability coverage. What are his options?
- A.
  
  None
- B.
  
  Buy a new policy
- C.
  
  Exercise his conditionally renewable provision
- D.
  
  Sue his agent
5.

Mr. V (salary $90,000) has only $3,000 per month of disability benefits. The "non-can" policy has a 5-year maximum benefit, own occupation, and a 90-day wait. What can Mr. V do to improve this or another policy without substantial changes in premium?
- A.
  
  Purchase a policy with increased benefits payable until age 65 but change the definition to any occupation
- B.
  
  Purchase a policy with increased benefits payable until age 65 but increase the elimination period to 120 days
- C.
  
  Purchase a policy with increased benefits payable to age 65 but change to a guaranteed renewable policy
- D.
  
  Increase the benefits of the existing policy
6.

An insurance agent makes a recommendation that his client needs $5,000 /mo . in individual disability benefits. The client agrees to buy a policy. The agent will need to obtain all of the following information for the insurance underwriter except which of the following?
- A.
  
  Client's earned income (W-2 or 1099s) and unearned income
- B.
  
  Client's net worth
- C.
  
  Client's existing disability coverage (including group coverage with ER).
- D.
  
  Client's complete cash flow
7.

Dr. Quinn buys a disability policy with a base benefit of $5,000 and a SIS benefit of $1,200. Dr. Quinn is disabled and ultimately receives $600 in Social Security disability benefits. How much benefit will she receive from her policy when Social Security pays $600?
- A.
  
  $600
- B.
  
  $5,000 / mo.
- C.
  
  $5,600 / mo.
- D.
  
  $6,200 / mo.
8.

What happens if Social Security turns her down?
- A.
  
  $600
- B.
  
  $5,000 / mo.
- C.
  
  $5,600 / mo.
- D.
  
  $6,200 / mo.
9.

What happens if Social Security pays $1,400.
- A.
  
  $600
- B.
  
  $ 5,000 / mo.
- C.
  
  $ 5,600 / mo.
- D.
  
  $6,200 / mo.
10.

Vickie owns an S corporation. The corporation pays her individual disability insurance premium under a salary continuation agreement. Which of the following is true?
- A.
  
  The benefits are tax-free to Vickie.
- B.
  
  The benefits are taxable to Vickie.
- C.
  
  The Corporation cannot deduct the premium.
- D.
  
  The premiums paid by the corporation are not a tax consequence to Vickie.
11.

A company has a formal salary continuation plan using individual disability policies. Due to cash flow problems, the company changes the plan to an informal plan. (Premium is a bonus to the employee.) How will the insurance premiums paid and the insurance benefits be treated?
- A.
  
  Tax-deductible premiums paid by the company, tax-free benefits to the employee.
- B.
  
  Non-deductible premiums paid by the company, tax-free benefits to the employee.
- C.
  
  Nondeductible premiums paid by the company, taxable benefits to the employee.
- D.
  
  Tax-deductible premiums paid by the company, taxable benefits to the employee.
12.

Terry is both a shareholder with Able, Inc. and the VP of sales. The company wants to offer a private incentive plan for Terry. They only want to informally fund the plan for Terry and a few select other key employees using disability insurance. Since only selected employees are eligible, Able will pay the insurance premium with a salary bonus to those employees. Which of the following is true?
- A.
  
  If Terry becomes disabled, the disability benefits are taxable.
- B.
  
  The company cannot deduct the premium.
- C.
  
  The company can deduct the premium.
- D.
  
  An informally funded incentive plan is typically funded with life insurance rather than disability insurance.
13.

Nick works for XYZ corporation as a sales manager. The company has a salary continuation disability insurance program, and it pays the full premium. Nick's benefit under the plan is $10,000 per month. Calculate Nick's net-of-tax monthly benefit if his tax bracket is 36% during disability.
- A.
  
  $3,600
- B.
  
  $5,000
- C.
  
  $6,400
- D.
  
  $10,000
14.

What would the answer be if Nick (Q4) paid the premium in full?
- A.
  
  $3,600
- B.
  
  $5,000
- C.
  
  $6,400
- D.
  
  $10,000
15.

What would the answer to Q4 have been if XYZ offered a Section 162 arrangement?
- A.
  
  $3,600
- B.
  
  $5,000
- C.
  
  $6,400
- D.
  
  $10,000
16.

Sherry has a choice between two disability policies. She is healthy, has a professional and stable job, and is single. She will pay the premium and needs the coverage for a long time. Policy APolicy B$3,000 per month of benefits 90-day waitBenefits to age 65 Noncancellable Own occupationPremium: $3,900 per year$4,000 per month of benefits 30-day waitBenefits to age 65 Noncancellable Any occupationPremium: $3,000 per year Which policy would you recommend based on these descriptions?
- A.
  
  Policy A because of its own occupation definition of total disability
- B.
  
  Policy B because she is healthy and the premium will be substantially less over time.
- C.
  
  Policy A because a good, stable job should allow her to begin self-insuring for disability.
- D.
  
  Policy B because it has a 30-day wait and the premium will be substantially less over time.
17.

Linda Hale is single age 35. Her mother just died of a disability. Linda's father died some months before her mother. Her father had been Linda's mother's caregiver. When her father died, Linda had to take a leave of absence from her job to take care of her mother. Fortunately, Linda's father had left enough money to allow Linda to take care of her mother but there was nothing left at her death. Linda's savings were also depleted over these past few months. Linda just went back to her prior employer and they are willing to rehire her. Her job is semi professional with good chances for advancement. Considering she has done no planning and her employer has limited benefits, what planning would you stress the most?
- A.
  
  Re-establish a 3 month emergency fund.
- B.
  
  Buy the best individual disability insurance policy available to her.
- C.
  
  Establishing a budget and save at least 10% per year for retirement.
- D.
  
  Buy a condo or house while mortgage interest rates are low.
18.

Which provision of a long-term care (LTC) policy is most important?
- A.
  
  Coverage for Alzheimer's disease
- B.
  
  Guaranteed renewable
- C.
  
  Custodial care
- D.
  
  Inflation protection
19.

Which of the following is true about long-term care insurance?
- A.
  
  Premiums paid are deductible in full.
- B.
  
  Unreimbursed expenses are subject to 10%-of-AGI floor.
- C.
  
  Premiums paid are included as fully deductible medical expenses subject to 10%-of-AGI floor.
20.

Qualified long-term care policies have all of the following characteristics except which of the following?I. Must be non-cancellableII. Limited premium deduction based on age (only if itemizing).III. Must provide skilled and Alzheimer's care. There is no daily limit for skilled care only.
- A.
  
  All of the above.
- B.
  
  I
- C.
  
  II
- D.
  
  I, III
21.

Which of the following are true about what Medicare will cover in regards to long-term care? I. It will pay up to the first 80 days of skilled care. II. During first 20 days, a cop-payment is payable. III. A hospital stay of 3 days consecutively is necessary to qualify for coverage. IV. The care needed must be defined to be skilled care. V. More than 30 days can lapse between the hospital stay and admittance to a skilled nursing facility.
- A.
  
  I, III, IV
- B.
  
  I, III, V
- C.
  
  II, III
- D.
  
  III, IV
- E.
  
  III, V
22.

Other than LTC insurance, what other means provide nursing home care coverage for longer than 100 days?
- A.
  
  Medicare
- B.
  
  Medicaid
- C.
  
  Medicare supplement policy
- D.
  
  Medigap insurance
23.

Mr. Beaty, age 54, and Mrs. Beaty, age 52, are considering purchasing LTC insurance. Their earned income and assets are average for their age bracket. They are concerned that a lengthy period of long-term care could wipe out their assets. Which of the following policies would you suggest?
- A.
  
  30-day elimination period, 3-year benefit period
- B.
  
  60-day elimination period, 4-year benefit period
- C.
  
  90-day elimination period, 6-year benefit period
- D.
  
  180-day elimination period, 6-year benefit period
- E.
  
  365-day elimination period, lifetime benefit period
24.

Mr. Baker owns Baker Industries, Inc. which is an S corporation. The Corporation pays the premium of Mr. Baker's personally owned disability policy. Which of the following are true? I. Baker Industries can deduct the premium II. Benefits payable to Mr. Baker under the policy will be tax- free
- A.
  
  I
- B.
  
  II
- C.
  
  Both
- D.
  
  Neither
25.

Mr. Jensen, age 58, got married late in life to a younger lady. Now he is concerned that he may not be able to retire until 70. She has two younger children, 16 and 12, who want to attend college and then go onto law school or become doctors. His wife has informed him that he will have to pay for the education. He is an attorney with a reasonably successful practice. He is worried about his disability insurance. Which would give him the greatest concern?
- A.
  
  Definition - own occupation
- B.
  
  Guaranteed renewable
- C.
  
  Elimination period - 120 days
- D.
  
  Benefit amount - 50% of salary
- E.
  
  Benefit period - to age 65